First-Time Home Buyers' Tax Credit: What it is and how it works

Being a first-time home buyer can be a stressful ordeal. Of course, when you throw in a pandemic, a high cost of real estate, with an even higher cost of living, it can make the entire process feel so unattainable.

If you are saving up to become a first-time homebuyer, there are a few incentives that could help make the process a lot smoother. There is the First-Time Home Buyers' Tax Credit, which is a slight reduction that can help recover some of the upfront costs involved.

What is a First-Time Home Buyers' Tax Credit?

The First-Time Home Buyer's Tax Credit was introduced in 2009, and it is a $5,000 non-refundable tax credit. This credit can provide you a total tax rebate of $750 as a first-time homebuyer, which can make a difference in buying your first home.

Who is eligible for the First-Time Home Buyers' Tax Credit?

The Canada Revenue Agency (CRA) provides a list of conditions that determine who counts as first-time home buyers. These conditions are:

1. You and your partner bought a home that meets the standards; and
2. You did not live in another home previously that was owned by you or your partner.

Does your home qualify?

Most homes in Canada qualify for the First-Time Home Buyers' Tax Credit. However, there are a few requirements:

1. The house is a single-family, semi-detached, townhouse, mobile home, or condominium;
2. It is a new build or an existing home located on Canadian soil;
3. You have moved into the home within one year of purchasing; and
4. The house is your primary residence, and it is registered under your name or your partner's.

An individual who has a disability can claim the Disability Tax Credit on your tax return, you can also claim the First-Time Home Buyer's Canada Tax Credit. There are a few conditions you will need to meet:

1. You have to claim the disability amount on your tax return in the same year that you purchased the home;
2. The home must be appropriate for the disabled person's needs; and
3. The home must be occupied within one year of buying it.

How would you claim the First-Time Home Buyers' Tax Credit?

It is simple. If you are filing your taxes and using an online program, you will answer 'yes' to the questions about whether you purchased a home for the first time in the tax year. If you are filing the taxes yourself, you will take the $5,000 and insert that in the CRA home buyer's amount on Line 31270 of your scheduled 1 (previously line 369 on your income tax return.)

What if you are buying a home with a spouse, common-law partner, or friend?

Unfortunately, The First-Time Home Buyers' Tax Credit can only be claimed once. That means if you are buying a home with a joint mortgage, you can only claim the tax credit one time. However, you can choose how you claim the credit. You can claim the total $5,000 yourself, or your partner could. You can split the amount between you and your partner, depending on how much tax each one of you pays. The choice is entirely yours if it does not go over $5,000.

Can you still apply for Home Buyers' Plan if you applied for The Home Buyers' Tax Credit?

These are two different government programs, and therefore, will not affect your ability to use the other. The First-Time Homebuyers' Plan lets you withdraw up to $35,000 of your RRSP to use towards a down payment. The Home Buyers' Tax Credit is a non-refundable credit given to you.

Are there other First time Home Buyer’s programs available that you can apply for?

There are still a few credits to apply for if you have received the First-Time Home Buyers' Tax Credit. Here is a list:

1. First-time homebuyer incentive: This can be a tricky one, and you want to make sure you know it is right for you and you have done your research. This type of credit is federally related, which helps first-time homebuyers by paying up to 10% of the home's cost in a shared equity loan.
2. Land transfer tax rebates: Some municipalities and cities will offer a partial refund to help first-time homebuyers counterbalance the cost of their land transfer tax. – This does not apply in Alberta because there is no land transfer tax.
3. GST/HST New Housing Rebate: You may be eligible for a repayment from the federal or provincial government if you paid GST or HST when purchasing your home.
4. Home Buyers' Plan: The federal government will let you use up to $35,000 of your RRSP towards a down payment on your home.

Summary

The First-Time Home Buyers' Tax Credit can help you save in the long run! Just in upfront costs alone, it can save you hundreds, and that is a surprisingly good deal. On the other hand, a more powerful way to save money when buying a home is to search for the best mortgage rate. It can be the best thing for any first-time homebuyer, and it can save you thousands of dollars over the life span of your mortgage.